Bloomberg News

Hewlett-Packard Reeling Accelerates CEO Succession Crisis: Tech

September 21, 2011

Sept. 22 (Bloomberg) -- Hewlett-Packard Co., weighing the ouster of Chief Executive Officer Leo Apotheker, may struggle to find a new leader who can revive the ailing computer maker after 11 months of strategy shifts and slashed forecasts.

Hewlett-Packard’s board plans to consider firing Apotheker, two people familiar with the matter said yesterday. It may appoint former EBay Inc. CEO Meg Whitman, a Hewlett-Packard director, to serve as an interim leader, said one of the people. The stock had plunged 47 percent on his watch as of Sept. 20, the worst performance in the Dow Jones Industrial Average.

“It’s not going to be easy,” said Michael Mullaney, who helps manage $9.5 billion, including Hewlett-Packard shares, at Fiduciary Trust in Boston. “They have to go back and redefine what they want to be as a company, go back to the drawing board.”

Apotheker’s ouster would leave the board looking for a leader who can do a better job helping Hewlett-Packard weather a personal-computer slump while pushing further into the market for products that deliver computing services over the Web. CEO candidates may also include Todd Bradley, who runs Hewlett- Packard’s PC unit, and David Donatelli, head of the business in charge of servers, storage and networking, said Jayson Noland, an analyst at Robert W. Baird & Co. in San Francisco.

Other possible candidates that would make sense include Gary Moore, chief operating officer of Cisco Systems Inc., or Steve Mills, who runs the software unit at International Business Machines Corp., said Shaw Wu, an analyst at Sterne Agee & Leach Inc. in San Francisco.

Board Discussions

Hewlett-Packard directors met yesterday in committees and will gather today as a full board, according to a person close to the situation. Directors are concerned about the stock price and its lack of improvement under Apotheker’s leadership, the person said. Some top Hewlett-Packard executives also opposed the acquisition of Autonomy Corp., a deal pushed by Apotheker, according to the person.

Hewlett-Packard, based in Palo Alto, California, jumped $1.51, or 6.7 percent, to $23.98 yesterday on the New York Stock Exchange after Bloomberg reported the possible management change. The stock is still down 44 percent since Apotheker, 58, became CEO on Nov. 1, compared with the 1.5 percent decline in the Standard & Poor’s 500 Index.

A new CEO would be Hewlett-Packard’s seventh leader since 1999, when Carly Fiorina took over from Lewis Platt. Fiorina departed in 2005 and was replaced on an interim basis by Robert Wayman, until the company named Mark Hurd to the top job. After Hurd resigned, Cathie Lesjak took the reins temporarily until Apotheker came aboard.

PC Options

In addition to discussing Apotheker’s future, the board is reconsidering a proposal to spin off the PC business, a person familiar with the matter said. Apotheker, the former CEO of German software maker SAP AG, said the company was exploring options for that unit on Aug. 18.

The same day, Hewlett-Packard agreed to buy software maker Autonomy for $10.3 billion. The company also said it was discontinuing products running its WebOS mobile software, including smartphones and tablets -- less than six months after saying it planned to put the operating system on every Hewlett- Packard computer. Shares slumped after the announcements on concerns that Hewlett-Packard was paying too much for the acquisition and the strategic changes showed a lack of deliberation.

Corporate Focus

With the Autonomy purchase and shift in focus, Apotheker was pursuing a plan to lessen the company’s reliance on lower- margin consumer products and concentrate on more-profitable corporate businesses such as servers, software and network services. Any successor to Apotheker will need to do a better job communicating the company’s vision to shareholders, said Tony Ursillo, an analyst at Loomis Sayles & Co. in Boston, which owns Hewlett-Packard shares.

“Leo’s tenure as CEO has been disastrous,” Ursillo said.

Under one scenario, the board may appoint Whitman until a permanent candidate emerges, according to a person with knowledge of the board’s thinking.

Whitman, 55, has been a Hewlett-Packard director since January, two months after she lost a bid to become governor of California. Before entering politics, Whitman spent 10 years at the helm of EBay, the world’s largest online marketplace, and established a career at consumer-related companies.

Whitman’s Consumer Expertise

For Hewlett-Packard, which is focusing on selling to businesses, Whitman is probably not the right person for the long-term, said Dana Stalder, a partner at venture capital firm Matrix Partners in Palo Alto, California.

“It’s not clear to me that someone who spent 30 years in the consumer space is the right person for an enterprise technology company,” said Stalder, who worked under Whitman for seven years at EBay. “HP is increasingly becoming an enterprise company, given the focus on enterprise software and services.”

Sales in Hewlett-Packard’s technology solutions group, which includes services, software and enterprise storage and servers, rose 14 percent in the fiscal third quarter to $15.9 billion. By contrast, revenue in the business that comprises notebooks and PCs fell 3.3 percent to $9.59 billion.

Donatelli, executive vice president of the enterprise business, joined Hewlett-Packard in 2009 after 22 years at EMC Corp., the world’s biggest maker of storage computers. Sterne Agee’s Wu, along with Noland from Baird, said Donatelli may be a candidate for the top job.

Challenging IBM, Oracle

The company needs a leader who can mount a challenge to the biggest providers of technology for corporations, such as IBM, Oracle Corp. and Cisco, Wu said.

“They basically need a turnaround specialist,” Wu said. “It’s not going to be an easy role, whoever it is. Autonomy and the PC business -- they’ve got to figure out what to do there because not everyone thinks those are necessarily the right moves.”

Bradley, who runs the PC business, said last month that he would like to oversee the unit if it’s spun out as a separate company. Bradley, 52, came to Hewlett-Packard in 2005 from PalmOne Inc., where he spent four years.

“I’m very focused on continuing to work with the team of people that have been so successful at making this the largest and most profitable PC company in the world,” Bradley said in an Aug. 23 interview on “Bloomberg West.”

As much as anything, Hewlett-Packard has to find an executive who can help the company get past a series of embarrassments that date back to a boardroom spying scandal in 2006 and continued through last year, when former CEO Hurd quit amid sexual-harassment allegations.

“It’s been really hard to watch what seems to be a company that’s lost its way,” said Leslie Berlin, project historian of Silicon Valley Archives at Stanford University. “The boardroom fights, the job cuts -- it’s almost unrecognizable from the Hewlett-Packard that was once the star attraction in the Valley.”

--With assistance from Aaron Ricadela in San Francisco, Jeffrey McCracken and Carol Hymowitz in New York and Dina Bass in Seattle. Editors: Jillian Ward, Nick Turner

To contact the reporters on this story: Ari Levy in San Francisco at alevy5@bloomberg.net; Danielle Kucera in San Francisco at dkucera6@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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